Franchise Update Magazine Issue IV, 2016 | Page 62
GROWING YOUR SYSTEM
Market
trends
Don’t Be a Platypus!
Adjusting sensibly to external threats
A
BY DARRELL JOHNSON
n alligator looks about the same
as it did 100 million years ago.
However, it evolved into a smaller, quicker version as the world around
it changed. On the other hand, I have to
believe that some animals came about from
a disruption of evolution. The platypus—
an egg-laying, duck-billed, beaver-tailed,
otter-footed mammal—comes to mind.
When external shocks are injected,
unexpected consequences often follow.
This is where we find ourselves with
recent legislative and regulatory actions
affecting the franchise business model.
Outcomes from shocks alter the evolutionary process and are harder to predict.
Let’s try anyway.
There are 11 functional responsibilities that all franchisors are responsible for
executing. Over time each of these functions evolves based on best practices and
now, increasingly, performance standards.
Left to evolve on their own, each of these
functions has been refined a great deal,
first from best practices and, more recently,
with the development of some key performance standards that are important to
the future of the business model. We are
beginning to understand the relationship
between franchisors’ functional efforts,
the costs of those efforts, and the effectiveness of those efforts in the outcomes
they seek to achieve.
When confronted with major disruptions from legislative and regulatory actions, we unfortunately usually go down
a reactionary path. The joint employer
challenge to the business model is one
major disruption. Another comes from the
DOL’s Wage and Hour Division, which
has conducted nearly 4,000 investigations
at the 20 largest fast-food brands during
the Obama administration.
These potentially major disruptions
are likely to create unintended consequences if the business model adjusts too
quickly. We’ll likely see this in several
60
rather predictable phases. It will start
with mutual uncertainty leading to legal
advice to abruptly doing less. We already
are seeing this in training and field support where franchisors are pulling back.
We will start seeing the same thing in
technology and marketing.
Change in business
is always hard to
adjust to because
people are
creatures of habit.
To be fair, from FRANdata’s vantage
point some of the business model practices
over the past 20 years have swung toward
much greater franchisor control over
system activities. Like a pendulum, that
movement goes past a balanced position
unless natural forces or, in this instance,
the hands of regulators and legislators,
stop the momentum.
If the legal/legislative/regulatory actions are not too great, the adaptability
hallmark of the franchise business model
will adjust. However, the speed of adjustment that many feel is necessary may not
lead to ideal solutions for both franchisors and franchisees. It is quite likely
franchisors will pull back needed levels
and types of support in reaction to NLRB
and DOL threats if they continue. Stopping or reducing services that are needed
and expected leaves a void. Who will fill
it? Who will pay for the altered services?
And how effective will the alternatives
be? The model will adjust and survive,
hopefully not in a seriously weakened
state. This will depend on the speed and
effectiveness of the transition.
The second phase of the transition
will start with those advisors who have
lots of answers. They will be quite visible.
It’s important to keep in mind that we
are in a new environment and the “right”
answers will evolve as more information
is known about the threats and different
approaches are tested. Best practices will
pop up fairly quickly in this phase. It will
take more time to understand the performance results, and therefore the effectiveness, of different approaches. Too much
speed here will be more damaging than
helpful. Change in business is always hard
to adjust to because people are creatures of
habit. When franchisees are accustomed
to getting services and support in certain
ways, any changes must be accompanied
by evidence showing that the new results
will be as good, or better, than before.
Having information on the outcomes
that validates the neutrality or positive
results of any changes will be critical to
franchisee buy-in and system stability. We
all want to avoid changes that diminish
the legal/legislative/regulatory threat but
that leave franchise systems weaker. This
final phase will reveal itself when best
practices and outcomes are understood.
Franchising does have an advantage it
needs to rely heavily on: a willingness to
share such information. To benefit from
this advantage, collectively we need to
establish ways of explaining new approaches and costs. Most important, we
need to explain effectiveness in franchisee
terms, not just in external threat terms.
A stronger business model depends on
clarity with both.
If this pattern of adjustment is correct,
the only remaining issue is timing. The
faster we get to adjustments that address
the threats—without risking performance
damage to the business model—the better.
I hope Franchise Update’s magazines and
next year’s Leadership & Development
and Consumer Marketing conferences
produce best practice forums for sharing such transition results. FRANdata is
putting a lot of emphasis on measuring
the approaches, costs, and results across
functional areas such as development,
training, field support, compliance, technology, and marketing. This must be accelerated if we are to make an aggressive
transition without ending up looking like
a platypus. n
Darrell Johnson is CEO of FRANdata, an
independent research company supplying
information and analysis for the franchising sector since 1989. He can be reached at
703-740-4700 or [email protected].
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